Oil futures plunged more than 10% in the past 26 hours

Mkts may have to wait half a year before oil prices could recover suggest experts

15.00 IST, Jan 13, 2015 | Dalal Times Bureau

Brent crude oil futures plunged by more than 10% in the past 26 hours on the intercontinental exchange and fell below $46 per barrel, with both blends headed for their lowest settlement levels since 2009.

Brent crude recorded a 6-year low of $45.25 per barrel in electronic trade at 1315 hours IST; while the WTI crude slipped below $45 levels in the morning trade and is facing strong headwinds to break $45 levels. The price difference between both the blends of crude has narrowed down to a meager 2.5% indicating that WTI crude is gaining strength.

US crude production meanwhile stood at more than nine million barrels per day, its highest level in more than 30 years.

Meanwhile, Goldman Sachs cut its crude outlook, predicting prices will remain low for a lengthy period sounding the warning bells of a prolonged glut in global oil markets extending well into the year. Also, Goldman has noted that oversupply concerns could trigger another round of sell off in the markets.

Industry experts believe that markets may really have to wait for at least another six months before it could see any recovery in the oil prices.

Chart Check:

The 15 minute chart of the ICE Brent futures chart looks very weak and finds no near term support as oil prices continue to slide. Volumes are low in comparison to Monday’s trade suggesting lower participation in the contracts.

The momentum indicator (MACD) is very volatile on the 15-min chart and continues to flicker between the negative and positive territory which indicates that prices could react wildly to any news in the markets.

Relative strength index (RSI) is currently in the oversold zone indicating that there could be a minor pullback in the next few hours

Copper prices drop to six-year low amid growth concerns

Supply glut and slowdown in China weighs on the commodity

12.00 IST, Jan 14, 2015 | 

Plunge in copper prices added frenzy to the market decline onTuesday as prices dipped by another 6% registering a broad sell off in the basemetal basket. 

By noon in East Asia, copper for March delivery plummeted 16cents, or 5.9%, to $2.49 per pound, hitting the levels not seen since last sixyears while the futures contract of the commodity on the NYMEX lost 8 cents in tradeyesterday.

Copper fell sharply in other markets too early Wednesday,with a reported 4.8% drop on London Metal Exchange amid stop-loss selling,while March copper lost 5% on the Shanghai Futures Exchange.

Concerns on oversupply and slow down of consumption in Chinaweighed on copper prices in recent months leading to a decline of 25% in thepast six months.

What’s the worry?

Any weakness in copper is often perceived as a sign of aweak economy because copper is used in a wide range of construction andmanufacturing activities. This slide is a bane of the copper miners andinventory holders as the value of the stock has depreciated while on the flipside it is a boon to the industries which use copper as its main raw materialthus reducing their input cost of production. 

However, going forward, analysts are bullish on the globaleconomic growth prospects for this year, but the copper strokes (chart)indicates otherwise. Adding to the ongoing global woes and slippage in pricesamid supply glut in copper as well as crude the World Bank on Tuesday, loweredits 2015 global growth outlook. Reason for the cut in forecast being,disappointing economic prospects in the euro zone, Japan and some emergingeconomies.

Chart Check: (image courtesy- investing.com)

The weekly chart of the Copper March futures chart looksvery weak and finds no near term support as prices continue to slide. The lastsupport level it recently broke was the May 2010 price level support of $2.77per pound. Currently the March futures contract are trading at sub $2.50levels. The chart does not identify any near term support until $1.30 priceswhich is the December 2008 support level for Copper.

Volumes are low in comparison to past week’s trade,suggesting lower participation in the contracts.

The momentum indicator (MACD) is consistently negative onthe same weekly chart since the past five months indicating that prices maytake long to recover even if it finds any support or any economic activitywhich may help the prices to retreat from these six-year lows.

The 10-period (10-week) moving average is well above thecurrent price levels suggesting that Copper may face a very tough resistance inmoving upwards in the near to medium term.

Relative strength index (RSI) is currently in the oversoldzone indicating that there could be a minor pullback in the next few weeks butother parameters and studies do not back up this stint

CRUDEOIL MINI TRADING IN MCX

The Multi Commodities Exchange (MCX) is betting  on the mini version of its crude oil contracts. It is hoping these  contracts will help the reach volumes achieved prior to the imposition of the commodities transaction tax.

Several trade and industry bodies have shown interest saying these will give them the opportunity to hedge smaller requirements.
A company official said it would launch a mini-crude oil contract soon. Small and medium-sized enterprises (SME) entities also have written letters to the regulator to launch crude oil mini contracts.

ALSO READ: MCX gets FMC nod to launch crude oil mini futures

"Smaller manufacturers also require energy for the manufacturing process, hence we requested the FMC (forward markets commission) to start mini contracts in crude oil. The FMC had given us a positive response,” said Jayram Krishnapta, president of Copper Consumers Association of South India.

Copper processors need naphtha as fuel, a derivative of crude oil. Even plastic processors, chemical manufacturers and users, synthetic yarn spinners and weavers, along with many other industries, can hedge their raw material costs with these contracts.
FMC is said to have received around 30 letters from the association to launch mini crude oil contracts.

Currently, an entrepreneur can hedge 100 barrels of crude oil in one contract, which amounts to Rs 3,60,700 per lot. Smaller firms cannot afford such a large contract as their requirement is not so big. But with crude oil mini contracts, they can hedge 10 barrels. The MCX crude oil contract is benchmarked against Nymex WTI crude oil, which comes to Rs 3,307 per barrel on MCX.

Trading interest in crude oil contracts has increased significantly in recent quarters following volatility in crude oil prices. With mini contracts being launched, even hedging from smaller firms is expected to increase.